Wide gap between largest European and US investment managers on CEO pay, research reveals

Germany’s Allianz voted against CEO pay at 92% of S&P 500 firms last year, but US giants BlackRock, Vanguard and Fidelity oppose just 4% of packages, As You Sow report finds

Big European investment managers took a much tougher stance on CEO pay when it comes to votes than their US peers in 2021, new research from US non-profit As You Sow has revealed in its new report ‘The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?’

In its assessment of the voting practices of large managers, only two European investment houses were found to have voted against less than 70% of pay packages of the 100 ‘most overpaid’ CEOs as identified by As You Sow, which includes the chiefs of Johnson & Johnson, Nike and General Electric in the list.

Six European investors – including Allianz Global Investors, Aviva Investors and Aberdeen Standard Investments – were found to have voted against more than 90% of the 100 CEOs’ pay deals last year. 

By contrast, just three of the big US investment firms assessed voted against more of the 100 ‘most overpaid’ CEOs pay deals than the lowest ranking European manager, which was Schroders with 53%. They were Dimensional Fund Advisors (62%), Morgan Stanley Investment Management (55%) and PIMCO (86%). 

As You Sow identifies “overpaid CEOs” by assessing pay at S&P 500 companies against what it would be assuming that “pay is related to cumulative Total Shareholder Return (TSR) over the previous five years.” This allows the NGO to calculate the “amount of excess pay each CEO receives”, which is then added to “data that ranks companies by what percent of company shares voted against the CEO pay package”. 

The research also looked at how investors voted on CEO pay at S&P 500 companies, with Union Investment and Allianz Global Investors coming out on top, voting against packages 93% and 92% of the time, respectively.  

Union Investment also voted against the 100 ‘most overpaid’ CEOs 97% of the time, the only higher tally on this among the big European investors was Aviva Investors which voted against this group 98% of the time.  

The worst performer on votes against the 100 ‘most overpaid’ CEOs was US giant Fidelity, which opposed packages just 17% of the time, the report found. On votes against S&P 500 CEO pay Fidelity, BlackRock and Vanguard were all bottom, opposing pay at just 4% of the time. Between them the trio represent over $20trn in assets under management.

A spokesperson for Vanguard told RI that last year, “Vanguard’s Investment Stewardship team focused on executive compensation practices and policies with company boards in over a third of our engagements with portfolio companies.” 

“If a company’s executive compensation plan does not appropriately reflect the best interests of their shareholders, Vanguard can utilize our vote to hold the board accountable. In 2021, for example, Vanguard voted against 340 directors on compensation-related issues,” she added.

BlackRock and Fidelity had not responded at the time of writing.  

Amundi, which manages $1.8trn in assets, was the largest asset manager assessed to vote against the majority of ‘overpaid’ CEOs pay, with 78% opposition. The giant French investment firm also opposed pay deals for S&P 500 CEOs 72% of the time, up significantly on last year when it was just 17.6%, according to As You Sow.  

In the report, As You Sow quotes US think-tank the Economic Policy Institute which found that in 2020 the ratio of CEO-to-typical-worker compensation was 351-to-1, up from “307-to-1 in 2019 and a big increase from 21-to-1 in 1965 and 61-to-1 in 1989”.  

The issue has been rising up the agenda for investors in recent years, according to the non-profit. Last year, for instance, a record 16 companies had CEO pay packages rejected by more than half of the shareholders, a 60% increase from the ten in 2020 and more than double the seven in 2019. 

CEO pay has financial consequences for investors too; since As You Sow published its first report in 2015 on CEO pay, in “each and every report”, the group stated that it found that “companies with the most overpaid CEOs suffer lower returns for shareholders than the average S&P 500 company”.